Conservatives led by Sen. Richard Shelby has successfully blocked MIT economist Peter Diamond from being named to the Federal Reserve Board. I tend to think that this was a mistake. In conversations with friends and colleagues, I’ve been told that this was a reasonable step in light of the facts that (1) Diamond was broadly sympathetic to quantitative easing and that (2) the Democratic effort to block the re-nomination of Randall Kroszner demonstrated that the bar has been raised for who should be considered an acceptable nominee, i.e., that it is reasonable to subject nominees to a strenuous ideological litmus test.

As Mike Konczal suggests, however, the litmus test that prompted the effort to block Diamond may be so strenuous that Kroszner himself wouldn’t pass it. Among other things, Kroszner seems to believe that QE2 was reasonable, that there might be a case for further rounds of quantitative easing,

Interviewer: “Does that leave open the possibility of a QE3 if we have weak numbers like this?”
Kroszner: “It depends on where we are four or five months from now. If the unemployment rate has not ticked down at all, if we haven’t seen a little bit more job creation, then of course the Fed will have to see if it needs to do more support.”

and that financial reform should include central clearing of derivatives, a policy that some conservatives, for reasons I don’t fully understand, have deemed objectionable.

It is possible that Mike hasn’t given us a full picture of Kroszner’s views, but I’d say that his post merits a reply from those who’ve praised Kroszner yet have been critical of Diamond.

P.S. Arpit Gupta opposed the Diamond lockout, but he argues that one could consistently be pro-Kroszner and anti-Diamond:

Basically, Diamond has little relevant expertise in the fields that matter for the Board of Governors. He’s a well-known economist who has done work in a lot of areas, particularly labor and social security. But he doesn’t have expertise in areas of financial regulation, financial crises, or monetary policy. The fact that he has a Nobel Prize in Economics means nothing here.
I’ve heard statements like “well he knows about labor markets — thatcould be helpful.” Yet the last time I checked few people believed in the Phillips Curve, so why is knowledge of labor markets a key quality to have among a Board of Governors nominee?
One can certainly say that he has more expertise than fellow members.He certainly has much more than, say, regional bank Presidents. Yet however one thinks about the regional bank presence on the FOMC, the reality is that by convention there has always been a disjunctionbetween the regional banks and the Board of Governors. The Board ofGovernors are simply held to a different academic/etc. standard thanrepresentatives of local banks.
Even by that standard, one can say that there are other Board of Governors representatives without his depth of experience — for instance Sarah Raskin. How should we think of such nominees? I wouldargue that the importance of nominees to the Fed has grown enormously in the last few years. We simply can’t afford staffing this agencywith anything other than the best in the fields of financial regulation and monetary policy. While a Sarah Raskin/Peter Diamond may have made the cut a few years ago, nothing other than Ben Bernanke/Randy Kroszner/Paul Krugman should be appointed today.
On top of that, there are the politics. My own reading is that while Shelby was opposed to the QE2 business, he also had a range of otherdisputes, and the conformation battle does not line up entirely withthe QE2 debates. The primary concern as I recall was the DiamondSocial Security plan and support for Keynesian spending. I agree withothers that this was sort of a pointless distraction.
But it also highlights what a poor choice this nominee was. Here youhave someone who is better on the merits than some recent nominees,but fails to meet an acceptable standard for the job (one that priorrejected nominees have met). Here is someone who brings a great dealof baggage utterly unrelated to monetary policy that threatens tofurther politicize Fed actions. There are dozens of more suitablecandidates out there; many of whom are also capable of speaking to theright in a language they understand. Konczal suggests that Shelby would now block the appointment of even Kroszner himself. That’s very possible; though I wonder the degree to which this debate was about the actual “merits” of pro/anti QE, or a pointless partisan battle inwhich such arguments were deployed to attack someone on the “other”side. If the latter is true, than a right-leaning nominee could garner substantial support.
I’m not saying that the battle to get rid of Diamond was anythingother than wrongheaded and pointless. But that shouldn’t detract fromthe fact that Diamond was a subpar candidate; and that the ObamaAdministration’s decision not to quickly appoint pro-easing advocatescapable of generating a political consensus remains the greatest errorof that Administration.

As always, a very interesting take. Arpit is, as you can probably guess from his remarks, a strong supporter of quantitative easing.